The US government and UBS on Sunday stepped back from the brink of a damaging court battle – scheduled to start on Monday – over the Swiss bank’s refusal to reveal the names of thousands of its offshore customers to the US Internal Revenue Service.

Prospects for a settlement between the sides improved after the US Department of Justice, UBS and the Swiss government asked for a three-week delay to the hearing to allow time for an “alternative” resolution to US demands for the names of 52,000 US taxpayers holding offshore accounts.